Sun Life Financial : 2023 GHG Emissions Reporting Methodology

Sun Life Financial2023 GHG Reporting Methodology

2023 Sun Life Financial GHG Reporting Methodology

Table of Contents
1.0 Background	2
2.0 Reporting Boundaries	2
3.0 Scope 1 and 2 Emissions	4
4.0 Scope 3 Emissions	5
5.0 Market Based Instruments	8
6.0 Data Sources and Quality	9
7.0 Notable Changes to Reporting	12
8.0 Sun Life Operations Performance vs. Target	14
9.0 Glossary of Terms	15
Appendix A - Emissions Factors 2023	16

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Sun Life Financial

2023 GHG Reporting Methodology

1.0 Background

The purpose of this document is to report on and provide transparency into Sun Life Financial's (Sun Life's) greenhouse gas (GHG) emissions calculation methodology for Scope 1, 2 and select Scope 3 categories (listed in Section 4.0 Scope 3 Emissions) for the 2023 reporting year (January 1, 2023 - December 31, 2023), some of which are subject to a limited assurance third party review. This reporting methodology builds on the 2022 reportingmethodologydeveloped collaboratively by Sun Life and its third-party consultant Brightly, with notable modifications outlined in Section 7.0. Sun Life has engaged KPMG LLP (KPMG) to provide limited assurance on select GHG metrics for the 2023 reporting year and the 2019 base year for Sun Life's operational emissions target (see KMPG's GHG Emissions Assurance Statement).

In accordance with the Greenhouse Gas Protocol (GHG Protocol),1 Sun Life discloses emissions across Scope 1, 2 and select Scope 3 categories as described in Section 4.0 Scope 3 Emissions. This enables Sun Life and its stakeholders to understand the GHG emissions trends of its global portfolio and track progress towards its sustainability goals. In 2023, Sun Life adopted Green Project Technologies' carbon accounting platform to track utility consumption and GHG emissions for Sun Life's global activities, further supporting its carbon accounting processes, as described below.

This document details the methodology used to measure the GHG inventory for the 2023 reporting year and contains information on boundaries, assumptions, calculation methodologies, and emissions factors used to develop Sun Life's GHG footprint.

2.0 Reporting Boundaries

Sun Life determines which business enterprises and activities are in-scope for the annual GHG inventory using both organizational and operational boundaries, in line with the GHG Protocol:

Organizational boundaries identify which areas of the organization are to be included in the reporting company's GHG inventory and define the approach used to determine ownership or control over the energy and emissions reported for the portfolio.

Operational boundaries dictate how emissions from business operations are accounted for across scopes 1, 2, and 3, i.e., which specific categories of emissions are allocated for carbon accounting and reporting.

1 Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004)

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2.1 Application of Boundaries to the Real Estate Portfolio

Sun Life calculates emissions associated with its real estate portfolio, which includes real estate investment (REI) properties and corporate real estate (CRE) leased offices, using the financial control approach.2 Sun Life's financial control is determined individually at the real estate asset level.

Sun Life has financial control over all REI properties but does not have financial control over leased CRE offices, except for where CRE offices are located within REI properties. If the lessor (Sun Life) has ownership and financial control over the asset, emissions from fuel and energy consumption fall under Scope 1 and Scope 2 respectively, and the emissions from water use and waste fall into the Scope 3 category 4 and 5 respectively.

When Sun Life is a lessee of a leased space and does not have financial control, all emissions from fuel, energy and water consumption are reported as Scope 3 Category 8: Upstream Leased Assets.

In cases where energy usage is associated with both REI and CRE spaces, emissions are always allocated to the lowest relevant Scope, i.e. Scope 1&2. Scope 1 & 2 emissions from REI properties are thus subtracted out of Scope 3, Category 8 emissions from CRE spaces, when applicable. This avoids double counting across scopes, in alignment with the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard, "a company's Scope 3 inventory does not include any emissions already accounted for as Scope 1 or Scope 2 by the same company."

2.2 Sun Life's Reported Emissions

The graphic below shows a visual representation of Sun Life's reported GHG emissions across the scopes as per the determined operational boundaries.

2 The GHG Protocol defines financial control as having the ability to direct the financial and operating policies of the operation, with a view to gaining economic benefits from its activities.

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3.0 Scope 1 and 2 Emissions

Sun Life reports on Scope 1 and Scope 2 emissions as defined by the GHG Protocol for Scope 1 and Scope 2. Scope 1 emissions are direct emissions from on-site combustion of fuels, including from natural gas, propane, diesel, fuel oils, and all other hydrocarbon-based fuel sources (note that Sun Life does not calculate emissions associated with refrigerants leakages, or diesel back-up generators, for more details see Section 3.2 Inventory Exclusions (Scope 1 and 2).Scope 2 emissions are indirect emissions from purchased energy (electricity, steam, chilled water), that are consumed at properties but generated elsewhere.

As per the GHG Protocol's Scope 2 Guidance3, Sun Life follows a dual reporting approach and reports on both location-based and market-based emissions:

• The location-based approach reflects the average emissions intensity of grids on which energy consumption occurs. For Scope 2 location-based, Sun Life reports all emissions associated with purchased energy (electricity, steam, chilled water).
• The market-based approach reflects the emissions from electricity that Sun Life has chosen to purchase via contractual instruments. Sun Life's market-based emissions calculations account for Renewable Energy Credits (RECs), green power purchase agreements (GPPAs), and any other applicable market-based instruments. RECs represent the rights to the environmental benefits from generating electricity from renewable sources. RECs are purchased for some REI and CRE properties and are reported using the market-based approach, as described below.

3.1 Market Based Emissions Factors

As per the GHG Protocol, residual mix emissions factors (representing grid emissions after the removal of voluntary green energy purchases) are used to calculate market-based emissions for the relevant locations within the US and Europe. If publicly available residual mix emissions factors are not available, location-based emissions factors are used. Note that residual emissions factors are only used to calculate emissions associated with the portion of energy use not covered by Renewable Energy Credits (RECs), as discussed further in Section 5.0 Market Based Instruments. Please see Appendix Afor further details on the applicability of emissions factors.

3.2 Inventory Exclusions (Scope 1 and Scope 2)

The following activities are excluded from Sun Life's Scope 1 and 2 inventory:

• Fugitive emissions from refrigerants: Sun Life uses refrigerants for two purposes, air conditioning, and running kitchen appliances at a few office locations. Data regarding fugitive emissions from refrigerants is not available, and thus is not included in the 2023 inventory's boundaries.

3 GHG Protocol Scope 2 Guidance - An amendment to the GHG Protocol Corporate Standard (World Resources Institute, 2015)

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• Diesel fuel for back-up generation: Data regarding the amount of diesel used for back-up power generation is not currently available, and thus is not included in the boundaries of the current inventory.
• Emissions are excluded for REI properties where all utilities are tenant-paid, and data isn't available. Sun Life will consider expanding data coverage to capture tenant utilities.

4.0 Scope 3 Emissions

Scope 3 emissions are the result of business activities not owned or controlled by the reporting organization, but that the organization indirectly affects through its value chain. As per the GHG Protocol's Scope 3 Guidance Sun Life currently reports on select Scope 3 emissions categories as listed below. For unreported categories, please refer to Section 4.6 Inventory Exclusions (Scope 3)for further details.

4.1 Category 4, Upstream Transportation and Distribution

Sun Life reports emissions associated with water transmission, distribution, and treatment at REI properties. This includes emissions associated with the energy needed to pump, process, and deliver clean water to Sun Life's REI properties, as well as to treat and dispose of the water after its use. Also included in this category are water-associated emissions at CRE offices within REI properties. Emissions are calculated using primary data on the volume of water consumption where data is available.

4.2 Category 5, Waste Generated in Operations

Sun Life reports emissions associated with waste by disposal type (landfill, recycling, compost etc.) for REI properties, where data is available. Emissions are calculated using various data sources including primary data and diversion reports provided by waste haulers and waste management invoices that include weight or volume of waste disposed.

4.3 Category 6, Business Travel

Sun Life reports emissions associated with global business travel across three modes of transport using both the distance-based and spend-based methods. The three modes are: air, rail, road (including personal vehicles, car-rentals, bus, rideshares, and taxis).

Sun Life uses the distance-based method whereby the distance traveled via each mode is multiplied by the appropriate emission factor for that mode of transportation to calculate emissions. Distances traveled are collected for each business unit globally based on data provided by expense management systems or by a third-party travel management company. Where business travel expenses are available without associated travel distances, the spend-based method is used, such that travel expenses are multiplied by an appropriate emission factor expressed in terms of GHG emissions per unit of currency.

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4.4 Category 8, Upstream Leased Assets

Sun Life does not have ownership or financial control over its CRE leased offices (unless they are located within REI properties), thus, emissions from CRE properties, including on- site data centres are allocated to Scope 3 Category 8, Upstream Leased Assets.

This category includes the following emissions sources from CRE spaces: on-site combustion of fuels (e.g., natural gas for heating), purchased energy (electricity, steam, chilled water), water consumption (including supply and treatment). Primary data such as utility bills, invoices, and meter-readings are used when available; where Sun Life specific utility data is not available (through sub-metering etc.), whole-building utility data is prorated based on Sun Life's share of the building's total gross leasable area. Reasonable estimations are used to fill in data gaps, as described in Section 6.3 Estimation Approaches.

4.5 Category 15, Investments

Sun Life has commenced work to determine its Scope 3 Category 15 GHG emissions, beginning with the financed emissions associated with the company's asset management activities. Financed emissions are the GHG emissions related to the investment and lending activities of financial institutions, such as Sun Life. Assessing and reporting financed emissions is an emerging and evolving process across the financial sector, and the inclusion of financed emissions in the 2023 GHG inventory represents Sun Life's progress towards measuring, monitoring, and disclosing emissions financed through Sun Life's investment capital. However, it is important to recognize the evolving nature of the financed emissions accounting landscape and the inherent limitations faced in this process. This includes challenges with data accuracy and availability, variability in emissions disclosures, the time lag between financial and GHG data, and the availability of appropriate methodologies. Sun Life plans to refine its methodology and approach to financed emissions analysis as data, industry guidance and market practices evolve.

Sun Life reports financed emissions associated with listed equities and corporate bonds for its General Account (GA) in alignment with The Partnership for Carbon Accounting Financials (PCAF) Standard Part A: Financed Emissions.4 These assets represent approximately 21.4% of General Account assets under management (AUM) and includes the Scope 1 and 2 emissions of all investees as well as the Scope 3 emissions of investees in sectors the PCAF Standard has phased in for reports published in 2023 and onwards.5

Emissions are calculated using holdings data as of December 31, 2023 (see Data Sources sectionfor additional information). Where verified or unverified emissions are available

1. PCAF (2022). The Global GHG Accounting and Reporting Standard Part A: Financed Emissions. Second Edition.
2. For reports published in 2023 and onward PCAF has phased in the following sectors (by NACE Level 2 classification): Energy (oil and gas), mining, transportation, construction, buildings, materials, and industrial activities.

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2023 GHG Reporting Methodology

from the investee company directly (e.g., a company sustainability report) or indirectly via verified third-party data providers (e.g., CDP), the attribution factor of each asset is calculated by dividing the outstanding dollar value of the issuer by the Enterprise Value Including Cash (EVIC) (in the case of listed companies) or total equity + debt (for bonds and private companies). That percentage is then multiplied by the corresponding company's Scope 1, 2, and 3 emissions where available. This results in a financed Scope 1, 2, and 3 emissions data point for each asset in accordance with PCAF.

Emissions are calculated at the parent level except for publicly traded subsidiary investees and non-corporate-owned investees where they are calculated at the investee level. Reasonable estimations are made when data is not available (see Estimates sectionbelow).

The following assets are excluded from the scope of reporting:

PCAF Asset Class	% Excluded			Reason for Exclusion
Listed Equity and	5.5%			Actual data unavailable and/or insufficient data
Corporate Bonds			for estimation.
Business Loans and	100%
Unlisted Equity
Project Finance	100%			Assessing data availability and quality to
Commercial Real	100%			determine GHG emissions
Estate
Mortgages	100%

Insurance-associated emissions, which are also included in Category 15, are excluded from the inventory due to a lack of dedicated methodology for life and health lines of insurance as of the publication date of this document.

4.6 Inventory Exclusions (Scope 3)

The following Scope 3 categories are not included in Sun Life's 2023 inventory. Some of these categories are not material to Sun Life's business, while others are expected to be material but currently lack available or reliable data. Sun Life continues to assess and pursue opportunities to improve data availability and methodology advancement to improve coverage and granularity of GHG reporting over time. See below for detail regarding these exclusions:

Scope 3 Category		Reason for Exclusion
1. Purchased Goods & Services		Expected to be relevant and/or material to Sun
2. Capital Goods
	Life's operations; assessing data availability and
3. Fuel and Other Energy Related Activities
	quality to determine GHG emissions
7. Employee Commuting

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Scope 3 Category

Reason for Exclusion

1. Downstream Transportation and Distribution
2. Processing of Sold Products

11. Use of Sold Products

Not currently applicable to Sun Life's operations

1. End of Life Treatment of Sold Products
2. Downstream Leased Assets
3. Franchises

1. Market Based Instruments
2. Renewable Energy Credits (RECs)

RECs are market-based instruments that represent the rights to the environmental benefits from generating electricity from renewable sources. RECs have a unique trackable ID that ensures the energy purchased can be verified as renewable. RECs are purchased for some REI and CRE properties and are reported using the market-based approach. In cases where RECs are purchased, residual emissions factors are used to calculate market-based emissions associated with the portion of energy use not covered by the REC, and a zero- value emissions factor is used to calculate emissions for the portion of the energy covered by the REC.

5.2 Carbon Offsets

Carbon offsets, also known as carbon credits, are market instruments used to finance activities that avoid the release of or capture GHG emissions. Carbon offset standards issue offsets to projects which are purchased and used by companies as a supplement to other carbon mitigation strategies. Each credit that Sun Life uses is equal to one tonne of carbon dioxide equivalent (tCO2e) of real, additional, verifiable, and permanent emission reductions as supported by the respective offset standard. As part of CarbonNeutral® company certification6 Sun Life supports projects that generate emission reductions through reforestation, improved forest management, and rural clean cooking with biogas in countries of operations such as Canada, United States, and India. However, carbon offsets are not included in market-based emissions totals.

5.2.1 Carbon Neutral Operations

Sun Life has maintained a CarbonNeutral® company certification since 2021 which includes the purchase of carbon offsets for operational emissions associated with global offices, data centres and business travel. CarbonNeutral® is a registered trademark of Climate Impact Partners and is achieved in accordance with The CarbonNeutral®Protocol,

6 Sun Life purchases carbon offsets and reports emissions in accordance with the requirements Climate Impact Partners' CarbonNeutral Protocol.

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the leading global framework for carbon neutrality. To meet 2023 carbon neutrality goal, Sun Life offsets remaining operational emissions by financing emissions reduction projects, supporting the transition to a low-carbon global economy. All the projects are independently verified to ensure emissions reductions occur.

6.0 Data Sources and Quality

Sun Life uses primary source data where possible for emissions calculations. However, when primary data is not accessible, an appropriate estimation approach is used based on available data, as discussed below.

6.1 Data Sources

6.1.1 Real Estate Assets

Sun Life reports REI emissions associated with all investment properties and CRE emissions associated with Sun Life's global offices and all business groups. Business groups include Canada, U.S., Asia (Hong Kong, Indonesia, Philippines, Vietnam, and International), SLC Management and its affiliates (BGO, Crescent Capital Group, InfraRed Capital Partners, Asset Management and Advisors Asset Management, Inc. (AAM)), and MFS.

Utility data for REI and CRE properties is obtained directly from monthly utility bills and/or meter specific readings where available. For certain properties, data is received directly from the property manager with supporting documentation. Brightly Software Canada (Brightly) tracks utility consumption for Sun Life's REI portfolio on its Eco Tracker Platform and provides the activity data for GHG inventory calculations. In cases where incomplete data is provided, data is estimated based on the data available. For CRE sites, where no data is available, usage is estimated. Estimation methodologies utilized in Sun Life's GHG footprint are explained in further detail in Section 6.3 Estimation Approaches.

6.1.2 Business Travel

Sun Life reports travel emissions for Sun Life Financial and all business groups. This includes Sun Life US, Sun Life Canada, Sun Life Asia and International, SLC Management and its affiliates (BGO, Crescent Capital Group, InfraRed Capital Partners, Asset Management and Advisors Asset Management, Inc. (AAM)), and MFS.

Data for business travel is obtained at the business unit level for each applicable mode of transportation, in units of total distance traveled by each travel method (i.e., air, rail, road). In some instances, only reimbursed travel costs are available without associated travel distances. In this case, emissions are calculated using country-specificspend-based emissions factors, rather than distance. Where travel data is not available, emissions are estimated. Please see Section 6.3 Estimation Approachesbelow for more details on business travel estimations.

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6.1.3 Investments

Data for financed emissions is obtained both internally from investment managers (portfolio holdings and weights) and externally (investee EVIC, equity, debt and absolute emissions). For data obtained externally, Sun Life uses MSCI and S&P Trucost for all directly reported emissions (e.g., company sustainability reports) and S&P Trucost for all indirectly reported emissions (e.g. estimated based on verified third party data providers like CDP). Please see Section 6.3 Estimation Approachesbelow for more details on financed emissions estimations.

6.2 Data Quality Assessment and Validation

Sun Life's team performs a multi-level data quality check of the datasets across all categories. These data quality checks fall into three categories: preliminary checks, resource level checks, and historical checks. See below for additional details on each category of data quality checks.

• Preliminary data checksinvolve activity data completeness and accuracy checks. For the REI datasets prepared by Brightly, three layers of checks are conducted before data is provided to Sun Life. These include automated flags at the invoice entry stage, ongoing cost, and consumption validation against models, and year-over-year variance analysis.
• Resource level data checksensure that activity totals and emissions totals are within an expected range based on historically reported values. For real estate assets, average Energy-Use-Intensities for each utility resource are used to ensure that total reported building energy usage falls within an expected range for a specific building classification and/or geography (such as the Commercial Buildings Energy Consumption Survey (CBECS)7 and Energy Star8).
• Historical data checksensure that aggregated emissions totals for all scopes are within expected values based on historical data disclosures. For example, total emissions intensities are calculated using diverse metrics such as square footage, employee count, etc. for the current and historic year for comparison purposes.

6.2.1 Financed Emissions Data Quality

Sun Life recognizes the key role that data quality plays in ensuring the accuracy and reliability of GA financed emissions calculations. Data quality scores provide transparency into the accuracy of the data used and provide a quantitative base year upon which Sun Life can improve.

1. "U.S. Energy Information Administration - EIA - Independent Statistics and Analysis." Energy Information Administration (EIA)- Commercial Buildings Energy Consumption Survey (CBECS), www.eia.gov/consumption/commercial/.Accessed 7 Jan. 2024.
2. "US Energy Use Intensity by Property Type." Energy Star, portfoliomanager.energystar.gov/pdf/reference/US%20National%20Median%20Table.pdf.Accessed 7 Jan. 2024.

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